Gold price edges higher ahead of Fed Chair Powell’s second testimony

July 10, 2024 2:34 am

  • The Gold price holds positive ground in Wednesday’s early Asian session. 
  • Rising Fed rate cut bets continue to lift the yellow metal. 
  • The PBoC refrained from buying gold for a consecutive  month, limits XAU/USD upside. 

The Gold price (XAU/USD) trades with mild gains on Wednesday during the early Asian session. The growing speculation that the US Federal Reserve (Fed) is likely to start cutting rates as early as September continues to support the non-yielding metal. Furthermore, political uncertainties within Europe and globally might boost Gold price, a traditional safe-haven asset.

On the other hand, the pause of China’s central bank Gold purchases for a second consecutive month might prompt traders to reduce bullish bets in the yellow metal as China is the world’s largest gold consumer. Investors will keep an eye on the second semi-annual testimony by Federal Reserve (Fed) Chair Jerome Powell on Wednesday, along with speeches by the Fed’s Michelle Bowman and Austan Goolsbee. On Thursday, the US Consumer Price Index (CPI) inflation data will be closely monitored. This data might offer more clarity on the US interest rate path.

Daily Digest Market Movers: Gold price gains ground amid rising Fed rate cut bets

  • China held its gold reserves steady for the second month in a row in June, after an 18-month period of purchases. Official data from China’s central bank shows its gold reserves holdings at 2,264 tonnes.
  • Federal Reserve (Fed) Chair Jerome Powell said in testimony Tuesday to Congress that the most recent inflation data showed some modest further progress and “more good data” could open the door to interest rate cuts. 
  • Powell emphasized that the central bank will continue to make decisions on monetary policy meeting by meeting, adding that holding interest rates too high for too long could jeopardize economic growth. 
  • Powell further stated that inflation readings over the first three months of this year did not boost Fed officials’ confidence that inflation was coming under control.
  • Financial markets are now pricing in 74% odds of a Fed rate cut in September, up from 71% last Friday, according to data from the CME FedWatch tool. 

Technical Analysis: Gold price holds bullish in the longer term

The gold price trades on a stronger note on the day following the break above the descending channel. The precious metal maintains its uptrend above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is also supported by the 14-day Relative Strength Index (RSI), which stands in the bullish zone around 55.0. 

The crucial resistance level for yellow metal will emerge at the $2,400 psychological level. The next hurdle is seen at $2,432, a high of April 12. Sustained trading above this level could set XAU/USD for a potential retest of the all-time high of $2,450.

On the other hand, sustained trading below $2,340, the former resistance level, could draw in enough bearish demand to head $2,318, a low of July 1. The next contention level to watch is $2,274, the 100-day EMA. 

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.

USD   0.00% -0.01% -0.01% 0.01% 0.04% -0.06% 0.01%
EUR 0.00%   0.00% 0.00% 0.02% 0.05% -0.06% 0.01%
GBP 0.00% 0.00%   0.00% 0.02% 0.05% -0.05% 0.01%
CAD 0.00% 0.01% 0.01%   0.03% 0.06% -0.04% 0.02%
AUD -0.01% -0.04% -0.02% -0.03%   0.03% -0.07% -0.02%
JPY -0.04% -0.05% -0.04% -0.07% 0.00%   -0.09% -0.04%
NZD 0.07% 0.05% 0.04% 0.04% 0.07% 0.11%   0.06%
CHF -0.01% -0.01% -0.01% -0.02% 0.01% 0.03% -0.07%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

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